Q&A: Why has real estate been so slow to embrace tech?

Enrico Faccioli, research analyst, Legal & General Investment Management Estimated at $217tn (£155tn), real estate is the largest asset class in the world. Given the scale of this sector, the level of innovation in technology has been minimal. Many of the processes are still manual, the physical paper trail is seemingly essential and, on the whole, assets are bought, sold and recorded in the same way they were 100 years ago. With many other sectors moving online, going paperless and adopting a more automated approach, it certainly begs the question: what happened to the real estate industry? The reasons behind this innovation lag are varied and seem to demonstrate an unwillingness to adapt to new best practices. For instance, tangible assets with legacy leases have not incentivised landlords to adopt new technologies. Furthermore, the sector-wide failure to attract a diverse workforce bringing new skills and talent has impeded developments. This is now changing. The opportunity to innovate in the sector is unprecedented. Leases are getting shorter; agents are threatened by tech-driven disintermediation; expectations are shifting and landlords are recognising the benefits of tech and are moving from acceptance to adoption. Commentators and proptech influencers are educating the industry, with the number of proptech industry events on the rise. Awareness is increasing and the slow moving corporate world is being given a chance to meet and work with the fast-paced start-up environment. The move from acceptance to adoption is not an easy feat. Large corporates in particular face significant challenges of outdated IT infrastructure and security barriers. Conversely, start-ups using cloud-based systems and APIs have a hard time integrating their systems with the landlords’ more archaic systems. Another hurdle is the way in which the fund management industry is organised, which by its very nature means asset managers that are looking after different funds may pursue tech initiatives independently of one other. Recognised at Legal & General as a “silo risk”, we mitigate it through a regular, central forum to discuss tech initiatives. A recent survey from KPMG, the first of its kind, revealed that only 24% of property companies have an enterprise-wide digital strategy; defined as a willingness to transform or risk irrelevance. While as a sector we are moving forward, our industry still lags behind others. This compared with 46% evidenced in financial sectors, which included banking, insurance and asset management. Developing a digital strategy is critical. It is well known that standalone acts of innovation rarely pay off. To succeed, tech projects must be aligned with the business strategy; support from board level is key. We have adopted a more structured approach to innovation through a digital strategy with clear outcomes and a coordinated approach to prioritise areas which offer the biggest payback. Technology should be seen as a driver and enabler of future growth, not as a mere cost centre. It must be distinguished from “business as usual” IT spend. Collaboration between established corporates and start-ups will accelerate adoption. Mentorship, investment and continued support should be standard. A cultural shift must also happen with current employees engaging with new, younger tech-savvy hires. The whole industry should focus on attracting and retaining diverse talent. This will play a pivotal role going forward; tech companies and start-ups are perceived as offering a more attractive and dynamic working environment while traditional corporates need to compete or risk their tech-savvy millennials finding opportunities elsewhere. New technologies are disrupting conventional order and are unlocking new business models every day. Blockchain, artificial intelligence, big data and the internet of things are still in their infancy in terms of property-related applications. It is our obligation to make the best use of technology to improve the experience of our occupiers, investors and staff. Through innovation and adaption we become more efficient and better equipped to deliver long term sustainable value for all our stakeholders.